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Considering paying for a lump of tracker mortgage

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  • 17-04-2018 3:10pm
    #1
    BobbyT28
    Registered Users Posts: 1,439 ✭✭✭


    Hi,

    I have a tracker mortgage with €191,000 remain with 18 years left. This currently is at 1.68%. Paying €940pm

    I am due to come into money soon of approximately €90,000.

    I spoke to a mortgage advisor in the bank and he said if I was to pay the full 90,000 off the mortgage it would bring my payments down to €470pm.

    Is it worth paying off the tracker mortgage or should I just leave it in the account to and let it pay the mortgage monthly?

    Not sure what to do. When I receive this payment I will have to start looking for a new job so bringing the payments down is appealing but my partner works and was just really looking for the best option to choose.

    Any info would be great or..someone who was in a similar situation


    Thanks
    BobbyT28


«1

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    #2
    l5auim2pjnt8qx
    Closed Accounts Posts: 151 ✭✭l5auim2pjnt8qx


    BobbyT28 wrote: »
    Hi,

    I have a tracker mortgage with €191,000 remain with 18 years left. This currently is at 1.68%. Paying €940pm

    I am due to come into money soon of approximately €90,000.

    I spoke to a mortgage advisor in the bank and he said if I was to pay the full 90,000 off the mortgage it would bring my payments down to €470pm.

    Is it worth paying off the tracker mortgage or should I just leave it in the account to and let it pay the mortgage monthly?

    Not sure what to do. When I receive this payment I will have to start looking for a new job so bringing the payments down is appealing but my partner works and was just really looking for the best option to choose.

    Any info would be great or..someone who was in a similar situation


    Thanks
    BobbyT28

    I had a conversation with some friends a year ago about similiar, paying
    off a lump sum on a tracker mortgage.The decision we all came to was that
    it can mess up or spun by the bank to be a conflict of your original "term & conditions "....meaning that some advisor may swear blind it won't effect your
    tracker before paying off lump sum and afterwards sticking you on a high variable rate with no comeback as verbal agreements hold not weigh as contracts.

    Note : Get everything in writing as banks are the sneakiest of the lot of them.


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    #3
    hawkelady
    Registered Users Posts: 1,357 ✭✭✭hawkelady


    A tracker mortgage is the cheapest money out there .. so if you need home improvements or car..I'd use some of that 90k as opposed to getting a personal loan or car loan. Other than that , I'd keep the 90k in an account and not touch it, and continue paying off your mortgage .


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    #4
    badboyblast
    Registered Users Posts: 753 ✭✭✭badboyblast


    Keep the money , money makes money, invest it


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    #5
    hognef
    Registered Users Posts: 828 ✭✭✭hognef


    If one or both of the following apply to you, then you should consider not putting the money towards the mortgage:

    You can invest the €90k (or part thereof) in such a way that it will gain in excess of the 1.68% p/a (after tax).

    It's worth it to you to, effectively, pay the 1.68% p/a (less any post-tax bank interest) on (part of) the €90k in order to have it available at no notice.

    If neither applies to you, it would make sense to use it to reduce the mortgage.


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    #6
    dubrov
    Registered Users Posts: 3,556 ✭✭✭dubrov


    It depends what you want to do with the 90k if you don't pay off the mortgage.

    Leaving it in a deposit about would earn close to zero interest while you would be borrowing at the tracker rate. So that makes no sense.

    You could invest with a likely better return but there would be risk


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    #7
    noel100
    Registered Users Posts: 358 ✭✭noel100


    I'm mortgage free 2yrs overpaid for many years, before mortgage was finished I tried to buy a holiday home in Kerry and release 70k from the my home. Bank wouldn't allow me to buy a second home with an equity release but would be allowed to build an extension or car or pay for children to go-to college.
    Be careful with paying off the mortgage as you have a tracker at 1.68%. you won't get a loan anywhere for that type of interest. 90k would buy you a holiday home abroad. Buy you a new top of the range BMW. Holiday of a lifetime or a fine extension to the house. If you were to borrow that money cheapest loan is 3% on a remortgage nearly twice what you are paying.


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    #8
    webpal
    Registered Users Posts: 1,269 ✭✭✭webpal


    Personally, if I was to pay off the mortgage, I would rather decrease the term rather the monthly payment. See if your disposal income each month is adequate currently and whether halfing your payment would make a difference. You say for a time the smaller payment would help but how long? Do you think you will get a job straight away? (Rhetorical questions btw)


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    #9
    ouxbbkqtswdfaw
    Closed Accounts Posts: 1,253 ✭✭✭ouxbbkqtswdfaw


    Does it make any difference whether you reduce the term or the monthly mortgage? Is it not the same in the long run?


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    #10
    AlmightyCushion
    Moderators, Education Moderators, Technology & Internet Moderators Posts: 35,056 Mod ✭✭✭✭AlmightyCushion


    70uank3zimjgel wrote: »
    Does it make any difference whether you reduce the term or the monthly mortgage? Is it not the same in the long run?

    Reducing the term keeps you monthly payments as they are but you'll pay less interest over the life of the mortgage.


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    #11
    ouxbbkqtswdfaw
    Closed Accounts Posts: 1,253 ✭✭✭ouxbbkqtswdfaw


    AlmightyCushion wrote:
    Reducing the term keeps you monthly payments as they are but you'll pay less interest over the life of the mortgage.


    I understand. Thank you.


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    #12
    famagusta
    Registered Users Posts: 601 ✭✭✭famagusta


    I would definitely agree with shortening the term instead of reducing payments if I was paying some off.
    However, with such a cheap mortgage I would be inclined to leave it as it is. Can you top up your pension fund? Invest it?


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    #13
    Yourmama
    Registered Users Posts: 205 ✭✭Yourmama


    famagusta wrote:
    I would definitely agree with shortening the term instead of reducing payments if I was paying some off. However, with such a cheap mortgage I would be inclined to leave it as it is. Can you top up your pension fund? Invest it?

    Never, ever shorten the term. Reducing the payment gives you cushion if anything goes wrong down the line, you can just pay the required rate. Otherwise you can simply overpay each month.


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    #14
    listermint
    Registered Users Posts: 33,709 ✭✭✭✭listermint


    Yourmama wrote: »
    Never, ever shorten the term. Reducing the payment gives you cushion if anything goes wrong down the line, you can just pay the required rate. Otherwise you can simply overpay each month.

    I don't really understand your point here?


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    #15
    jimmycrackcorm
    Registered Users Posts: 14,330 ✭✭✭✭jimmycrackcorm


    If you have a pension then put the maximum monthly amount from your salary each month into AVCs. Pay the difference of the deduction from your salary from the 90k.

    There is no investment that will give you as high a benefit as the tax free contributions to your pension. E.g. if you pay 1000 per month into your salary, it will cost you only 500 nett from your wages. Making up that difference from your 90k is effectively turning that into an extra 180k in your pension.


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    #16
    Turkish1
    Registered Users Posts: 273 ✭✭Turkish1


    jimmycrackcorm wrote: »
    If you have a pension then put the maximum monthly amount from your salary each month into AVCs. Pay the difference of the deduction from your salary from the 90k.

    There is no investment that will give you as high a benefit as the tax free contributions to your pension. E.g. if you pay 1000 per month into your salary, it will cost you only 500 nett from your wages. Making up that difference from your 90k is effectively turning that into an extra 180k in your pension.

    €1,000 per month into your pension will cost you €600 from your net pay (assuming you pay the higher rate of PAYE). The only Tax relief is on PAYE - PRSI and USC both still apply.


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    #17
    lau1247
    Registered Users Posts: 2,129 ✭✭✭lau1247


    listermint wrote: »
    I don't really understand your point here?

    The difference is reduce payment allow you the flexibility to overpay anytime you need whereas the other way around, you can't increase back your term that you had reduced.

    It is about giving yourself options.

    West Dublin, ☀️ 7.83kWp ⚡5.66 kWp South West, ⚡2.18 kWp North East



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    #18
    Earleybird
    Registered Users Posts: 271 ✭✭Earleybird


    Very cheap, I'd be in no rush to pay it down. As a basic example you could invest €1,000 a month with KBC at 2.5%. When you can earn more than you pay on a risk free investment I can't see why you would redeem. As previously mentioned any additional finance you might consider would also be at substantially higher rates.


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    #19
    dubrov
    Registered Users Posts: 3,556 ✭✭✭dubrov


    Earleybird wrote:
    Very cheap, I'd be in no rush to pay it down. As a basic example you could invest €1,000 a month with KBC at 2.5%. When you can earn more than you pay on a risk free investment I can't see why you would redeem. As previously mentioned any additional finance you might consider would also be at substantially higher rates.

    You'd have to pay DIRT tax on that bringing the net interest rate down to 1.57%. Also you can only add 1000 a month. You wouldn't get anywhere near 2.5% for a lump sum deposit anywhere


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    #20
    noel100
    Registered Users Posts: 358 ✭✭noel100


    Why don't you ask the bank how much will they discount you to get rid of the tracker.
    Take a variable mortgage out less 90k + discount. Discount could cover difference 1.68 and variable.


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    #21
    dubrov
    Registered Users Posts: 3,556 ✭✭✭dubrov


    noel100 wrote: »
    Why don't you ask the bank how much will they discount you to get rid of the tracker.
    Take a variable mortgage out less 90k + discount. Discount could cover difference 1.68 and variable.

    The banks won't do a deal for a 1.68% tracker.
    They are currently borrowing much cheaper than that


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    #22
    Franz Von Peppercorn
    Closed Accounts Posts: 7,070 ✭✭✭Franz Von Peppercorn


    listermint wrote: »
    I don't really understand your point here?

    He said don’t reduce the term.


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    #23
    Fian
    Registered Users Posts: 2,188 ✭✭✭Fian


    You will never get money as cheap as your tracker. Invest the 90k, you should easily be able to generate a return that is higher than your tracker interest rate.

    The bank made a huge mistake when they gave you that cheap tracker, because they are giving you money at a rate far below what is sensible. They are losing money every month on it. You should take advantage of their miscalculation, not back out of a deal that is enormously one sided in your favour.

    Pension is a good idea, or just put it into an index fund that tracks a european stock exchange. Or buy an appartment and rent it out if you prefer.


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    #24
    spaceHopper
    Registered Users Posts: 3,970 ✭✭✭spaceHopper


    You’re been made redundant right? OK get proper advice from a tax accountant. I wouldn’t pay off a lump sum now. When you’ve got a new job and are sure of what your income, how much you will be able to save…. Then make a decision.

    For instance, you are used to paying 900+ a month now. If you got a job on a lower income would you be able to save for the future, soon you will have 90K in savings. If you save 500 a month every month without dipping into it, it will take you 15 years to save that.

    If you pay off the 90K it’s gone you can’t get it back. What if you needed to put on an extension? The bank will lend you money to do it but not 100% so you’ll need savings.


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    #25
    badboyblast
    Registered Users Posts: 753 ✭✭✭badboyblast


    noel100 wrote: »
    I'm mortgage free 2yrs overpaid for many years, before mortgage was finished I tried to buy a holiday home in Kerry and release 70k from the my home. Bank wouldn't allow me to buy a second home with an equity release but would be allowed to build an extension or car or pay for children to go-to college.
    Be careful with paying off the mortgage as you have a tracker at 1.68%. you won't get a loan anywhere for that type of interest. 90k would buy you a holiday home abroad. Buy you a new top of the range BMW. Holiday of a lifetime or a fine extension to the house. If you were to borrow that money cheapest loan is 3% on a remortgage nearly twice what you are paying.

    Very very important point for people .


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    #26
    TeaBagMania
    Registered Users Posts: 1,192 ✭✭✭TeaBagMania


    you don't need to throw the whole 90K at the mortgage in one go, you could pay an extra 5K every 90 days or so over time. just make sure its applied to the "principle only"


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    #27
    hawkelady
    Registered Users Posts: 1,357 ✭✭✭hawkelady


    TeaBagMania wrote: »
    you don't need to throw the whole 90K at the mortgage in one go, you could pay an extra 5K every 90 days or so over time. just make sure its applied to the "principle only"

    Why principle only? It all has to be paid anyway ..


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    #28
    SteM
    Registered Users Posts: 6,568 ✭✭✭SteM


    hawkelady wrote: »
    Why principle only? It all has to be paid anyway ..

    The less principle you have outstanding the less you can be charged interest on.


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    #29
    dubrov
    Registered Users Posts: 3,556 ✭✭✭dubrov


    What else would you overpay against apart from principle?


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    #30
    TeaBagMania
    Registered Users Posts: 1,192 ✭✭✭TeaBagMania


    dubrov wrote: »
    What else would you overpay against apart from principle?

    Exactly, but I wouldn't put it past any financial institution to apply your over payment toward interest unless you specifically specify principal only


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    #31
    SteM
    Registered Users Posts: 6,568 ✭✭✭SteM


    TeaBagMania wrote: »
    Exactly, but I wouldn't put it past any financial institution to apply your over payment toward interest unless you specifically specify principal only

    But once you're paying your monthly mortgage repayment you're covering the interest charged that month surely?


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